Nearly 60 top corporations used loophole to avoid paying billions in US taxes

Verizon and News Corp. are among the dozens of companies listed on the Standard & Poor’s 500 that paid a zero percent tax rate in the last year. The so-called effective tax rate is how investors explain the tax a company pays compared to its profit.

While it is not illegal in any way for major companies to pay a
zero percent tax rate - or in some cases even less - Friday’s
analysis by USA Today does highlight some of the creative methods
those corporations use to avoid dipping into their profit
margins, and how that may ultimately impact national policy on
corporate taxation.

The top federal income tax rate currently sits at 35 percent, a
number that has been the source of public frustration for many
company executives. Yet Seagate (a data storage manufacturer with
a market value of $15.9 billion), Public Storage (the largest
self-storage firm in the world with a $29.5 billion market
value), and others pay a lower tax rate than most individual
middle-class American families.

“Investors hope company management is doing everything they
can do to generate profit, legally,” Nick Yee of Gradient
Analytics told USA Today. “But the tax code is gray, and
there’s often no set guidance.”

Transferring payments to offshore accounts is one of the most
popular ways for companies to avoid heavy tax burdens. For
example, a company could organize foreign subsidiaries that make
raw materials in countries with low tax rates. Executives would
then buy the material from a foreign supplier at a price far
above cost, according to USA Today, thus keeping a large
profit.

The effective income and payroll tax rate for an American family
that earns an average $64,500 a year stands at 12.7 percent,
according to payroll tax statistics released in 2012.

The current federal tax code that applies to the corporations in
question even allows them to avoid paying taxes in years when
they earn a profit.

Sending finances offshore has become so commonplace that US
officials have sought to work with international leaders to close
the loophole. Tax avoidance cost the US approximately $300
billion last year and although much of that sum comes from
individuals, cracking down on corporations could prove difficult
because transfers of this sort are completely legal.

This tax analysis comes just months after a congressional
investigation found that Apple had set up a complicated web of
subsidiaries to avoid paying any taxes. Lawmakers found that some
of Apple’s subsidiaries listed zero employees and were
effectively stateless entities run from the company’s offices in
California.

“There is a technical term economists like to use for behavior
like this,” Edward Kleinbard, a former staff director at the
Congressional Joint Committee on Taxation, told the New York
Times in May. “Unbelievable chutzpah.”